A few thoughts on taxing Savings, Consumption or Gambling?
31 December 2009Savers are taxed by government policies to assist banks to repair their balance sheets. This always happens after a financial crisis when most banks are bust but governments conspire to hide the facts. Prudent savers get hosed by low interest rates, especially retirees. Be in no doubt that this is a deliberate form of stealth taxation of the suckers (aka citizens). Is there a generous national savings system in the US for US citizens (only) that favours the prudent especially the retired, and run by the Treasury directly? I mean a scheme that anyone with savings would use because it is obviously better and safer than ANY private alternative for an initial (limited) sum. Buying a home is a form of saving for most. Is there a nationally available mortgage for well qualified borrowers with simple low fixed rates such as offered to public service employees in Europe? Why limit it to just public employees? Why not let underwater homeowners refinance into such a scheme? You know they are going to walk away anyway so hitting lenders whose losses are mostly government underwritten anyway. Seems to me at a macro level to be a bookkeeping exercise essentially, and would help re-balance the financial decks.
Spenders enjoy low prices on consumption because most goods are relatively cheaper in a credit induced recession (for a while). Meanwhile tax revenues slump but many talking heads are against the introduction of a national (Federal?) VAT, usually on the basis that it is regressive (or all taxes are evil stand of the plain dumb stupid fraternity:-) Be in no doubt that extreme tax increases are inevitable.
Meanwhile the Wall street gambling community continue to play with all the money in the world in an essentially unregulated casino called the Financial Services Industry. Calling this activity an “industry” is part of the scam, of course, like solid marble and stone foyers in banks are intended to reassure. In fact the only “assured” are the salaries and bonuses of the less than competent so called meritocracy (aka kleptocracy). A small tax (stamp duty) on derivatives trading (CDFs) would yield $bns per day for treasuries worldwide. They were invented primarily to evade taxation.
Expecting the completely dysfunctional US government to redress any of these matters is wishful thinking. Most European national governments get progressive (aka liberal) legislation enacted with far greater ease and speed than ever before despite the huge lumbering size of the European Union administration. Watching Obama struggle to make real progress does not bode well for global economic recovery. Serious fractures in the G20 plans are to be expected. Copenhagen was but a mild preview of national self interest and protectionism to come in the next decade.
Tim Coldwell
New Years Eve, 2009
Loosely related articles Self-doubt tarnishes Brand America and Reviving Confidence in the American Economy – China, Investment and the Deficit Hawks and Will Americans Reclaim Our Nation in 2010 From the Thugs and Con Artists?
8 Responses to “A few thoughts on taxing Savings, Consumption or Gambling?”
January 1st, 2010 at 4:27 am
“Is Our Tax System Helping Us Create Wealth?”
David Cay Johnston looks at changes in the tax burden for high income and lower income taxpayers since 1961. The bottom line: 90% of the population did not do well over this time period:
http://economistsview.typepad.com/economistsview/2009/12/is-our-tax-system-helping-us-create-wealth.html
January 1st, 2010 at 4:32 am
Paul Krugman: Chinese New Year
The bottom line is that Chinese mercantilism is a growing problem, and the victims of that mercantilism have little to lose from a trade confrontation. So I’d urge China’s government to reconsider its stubbornness. Otherwise, the very mild protectionism it’s currently complaining about will be the start of something much bigger.
http://economistsview.typepad.com/economistsview/2009/12/paul-krugman-chinese-new-year.html
January 2nd, 2010 at 8:13 pm
Citi agrees to do cramdowns
After meetings with lawmakers, Citigroup has agreed to back legislation that would allow bankruptcy judges to alter the amount due on mortgage principal, so called cram downs.
As it stands today, all other debtors including corporations have the cram down option available in bankruptcy court. However, changes to bankruptcy law have eliminated this option for mortgages, creating an impasse as house prices have dropped.
http://www.creditwritedowns.com/2009/01/citi-agrees-to-do-cram-downs.html
Good news for underwater mortgagees. Will others follow Citi’s example?
January 2nd, 2010 at 8:30 pm
Playing “What If” With $10,000 From 12/31/1999 to Today | Paul Kedrosky, Infectious Greed
What $10,000 invested 12/31/1999 would be today across various investable thingies:
S&P 500: $9,090
Venture capital: $8,800 (for 1999 vintage funds)
10-year Treasuries: $18,000
Raw materials: $13,803
Gold: $37,852
http://paul.kedrosky.com/archives/2010/01/playing_what_if.html
I guess 6% compound for Treasuries is not too shabby, so that answers that question.
January 3rd, 2010 at 10:39 am
Paul Volcker: The Lion Lets Loose
Extract – Question: You feel strongly that the financial system has gotten out of whack. Do you think the American political process is capable of fixing it?
The American political process is about as broken as the financial system. Therefore, one has to be a bit skeptical. Just to give you one little example, one unrelated to the financial crisis. Here we are on Dec. 29, almost a year after the Inauguration, and there is no Under Secretary of the Treasury. That should be an important position. How can we run a government in the middle of a financial crisis without doing the ordinary, garden-variety administrative work of filling the relevant agencies? The Treasury is an outstanding example of a broken system, but it’s not the only one.
http://www.businessweek.com/magazine/content/10_02/b4162011026995_page_2.htm
January 3rd, 2010 at 12:30 pm
A quote from Amartya Sen, and my New Year’s Tax Resolutions (for Congress and the Obama Administration)
Extract:
5) In order to restore some sort of balance between worker and employer, Congress should eliminate the business deduction for any compensation in excess of 20 times the average salary (about $1 million). The cap on compensation deduction to apply to compensation in any form (stock, assets, cash), whether or not “performance related”.
Tim here: I have made this proposal before on several blogs. Unfortunately it is just too easy to evade. Where are the auditors when you need them to blow the whistle?
http://ataxingmatter.blogs.com/tax/2010/01/new-years-tax-resolution-for-congress-and-the-obama-administration.html#
January 3rd, 2010 at 1:17 pm
Note for Savers
Yield = Poison (2)
by David Merkel
Extract:
I’ll give the Treasury and the Fed this: they have created an environment where savers are punished, and have to take significant risks to get yield. They have created a situation where the markets are dependent on subsidized credit, and speculation dominates over lending to the real economy. They are pushing us deeper into a liquidity trap, as low-to-negative return investments in autos, homes, and banks get supported by cheap public credit, rather than getting reconciled in bankruptcy, so that capital can be redeployed to higher returning projects.
http://alephblog.com/2010/01/02/yield-poison-2/
January 4th, 2010 at 3:05 pm
Why hasn’t the Fed been targeting two or three percent inflation? by Tyler Cowen, Marginal Revolution
Extract:
It means that “Main Street” is paying for “Wall Street” (forgive me the use of those awful terms) in at least two ways: high unemployment and inability to earn much on one’s savings. Risk on the Fed balance sheet is also paying some big part of the bill, since presumably that is helping to maintain the interest rate spread.
The term structure also implies that the market is expecting rising short rates, so if the bank mess isn’t cleaned up soon, heaven forbid. The spread, as a means of restoring bank profitability, won’t last forever.
http://www.marginalrevolution.com/marginalrevolution/2009/12/why-hasnt-the-fed-been-targeting-two-or-three-percent-inflation.html#